For longer than any of us has been alive, real estate investors have struggled to prevent lawsuits. And honestly, there is no surefire way to do that. But one of the best ways is using a trust, or specifically, a land trust.
Land trusts are trusts you can use to exclusively hold real estate titles. On their own, they don't protect you from lawsuits, but they can be a critical component of an asset protection plan. They are different from the typical trust because they don't usually involve family.
A land trust is great if you want to remain anonymous. This prevents lawsuits in one simple way. The logic is, if the "other side" doesn't know you own the property, how can they sue you?
A land trust has three parts. You have a grantor of the trust, a trustee, and a beneficiary. A trustee has control of the property and manages the trust itself.
The beneficiary is the person who receives all the benefits of the land trust (i.e., the income made from the land trust). In some circumstances you'll have to disclose who the trustee of a land trust is. But let's say you don't want to let people know who the trustee is.
For that situation, you can use a nominee trustee. This is a person whose name appears on the trust document. He or she has specific powers which allow them to file tax returns on behalf of the trust. It is the nominee trustee's responsibility to send the tax returns of the trust to the proper tax agency or for filing purposes of the deed(s).
If someone is looking to actually alienate a property, sell it, or dispose of the trust asset they will want to look at the trust agreement before they buy an asset from a land trust. In that agreement they will see that the nominee trustee doesn't have those powers. Which means you don't have to worry about somebody "running away" with your property. The person who will have the power to sell assets of a trust will be stated in the trust agreement.
The best part is, this person can be you.
If you want to learn more about how land trusts can protect your real estate investments, contact us today. I'd be glad to answer any questions you have.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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